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California passes new law prohibiting disparagement waivers

California recently passed AB-2365, which provides that “a contract or proposed contract for the sale or lease of consumer goods or services may not include a provision waiving the consumer’s right to make any statement regarding the seller or lessor or its employees or agents, or concerning the goods or services.” Further, the law will make it unlawful to “threaten or to seek to enforce” such a waiver, or to “otherwise penalize a consumer for making any statement protected” by the law. However, the law provides that it “shall not be construed to prohibit or limit a person or business that hosts online consumer reviews or comments from removing a statement that is otherwise lawful to remove.” Civil penalties, which may be pursued by consumers or a public prosecutor, start at $2,500 for an initial violation and go up to $5,000 for each subsequent violation, with penalties of up to $10,000 for violations that are deemed willful, intentional, or reckless. The California law is a response to companies who have been trying to prevent unhappy customers from posting negative reviews online, resulting in some instances in companies withholding deposits or fining reviewers for violations of their non-disparagement clauses. The law will take effect January 1, 2015.

TIP: Companies should review their customer agreements, website Terms of Use, and other click-wrap agreements to ensure that these agreements and terms do not violate this new law.